On September 22, the People’s Bank of China authorized the National Interbank Funding Center to announce the latest market quoted interest rate (LPR) for loans: the 1-year LPR is 3.85%, and the 5-year or more LPR is 4.65%. Both loan interest rates remain the same as in the previous period.
Up to now, the LPR quotation has remained unchanged for 17 consecutive months. In fact, the LPR quotation consists of two parts: the medium-term lending facility (MLF) interest rate and the bank spread. On September 15, the central bank renewed the one-year MLF with a bidding rate of 2.95%, which was the same as the previous month.
At that time, many market analysts pointed out that this means that the reference basis of LPR quotations has not changed, and it is expected that LPR quotations will likely not change this month.
Zhou Maohua, a macro researcher at the Financial Markets Department of China Everbright Bank, told the “Daily Economic News” reporter: “LPR is standing still and in line with market expectations. It is mainly due to the August financial and macroeconomic data showing that the domestic economy is still on a recovery track, and economic recovery faces more challenges. It is a structural issue; at the same time, keeping the LPR interest rate stable will help stabilize the property market expectations.”
LPR “stands still” for 17 consecutive months
In my country’s current interest rate system, LPR quotations belong to the category of market interest rates, but because they have a significant impact on the financing costs of market entities, especially bank loan costs, they have strong policy signal significance and have received widespread market attention.
The reporter noted that since September 2019, the 1-year LPR quotation and the 1-year MLF bidding rate have always been adjusted simultaneously. While observing the MLF interest rate, the market will also make predictions on the subsequent LPR quotations. On the 15th of this month, the central bank renewed the 1-year MLF, with a bidding rate of 2.95%, which was the same as the previous month. At that time, many market analysts pointed out that this means that the reference basis of LPR quotations has not changed, and it is expected that LPR quotations will likely not change this month.
Up to now, the LPR quotation has not been adjusted for 17 consecutive months. Wang Qing, chief macro analyst at Oriental Jincheng, believes: “The MLF interest rate remained unchanged in September, and the LPR quotation that month did not move was in line with market expectations.”
Regarding the reason why LPR has not been adjusted, Wang Qing analyzed that the full RRR cut was implemented on July 15, and the LPR quotes have remained unchanged for three consecutive times since then. One direct reason is that the marginal cost of funds of banks has fallen more than that driven by the current RRR cut. It is not enough to prompt the quotation bank to lower the LPR quotation by 0.05%.
The data disclosed by the China Banking and Insurance Regulatory Commission showed that the net interest margin of commercial banks was 2.06% at the end of the second quarter, a decrease of 0.01 percentage point from the end of the first quarter, and was not far from the lowest point of 2.03% since the statistics were available in October 2010. In addition, the proportion of bank non-interest income fell to 20.8% at the end of the second quarter, a decrease of 0.8 percentage points from the end of the first quarter, the lowest since 2013.
Wang Qing believes: “This is another reason why the LPR has not adjusted. This means that banks are now more dependent on loan interest income, which makes it more cautious to actively lower the key loan interest rate pricing reference benchmark.”
Expert: One-year LPR may be lowered in the fourth quarter
Regarding whether the follow-up MLF interest rate that the market is concerned about will be lowered, and whether there is a possibility of a RRR cut in the fourth quarter. Wang Qing said that after short-term disturbances such as the epidemic in September have subsided, macroeconomic indicators are expected to stabilize, but the probability of a significant rebound is low. This means that the current demand for stable growth is increasing, and the financial system needs to increase its support for the real economy, including moderately increasing credit allocation to further reduce corporate financing costs.
The reporter noted that the State Council executive meeting held earlier pointed out that this year an additional 300 billion yuan of small re-loan lines will be added to support local corporate banks in granting loans to small and micro enterprises and individual industrial and commercial households. Improve loan interest discounts and incentives for companies in industries severely affected by the epidemic. Promote banks to issue more inclusive small and micro credit loans.
“For now, it is more urgent to reduce the financing cost of small, medium and micro enterprises to hedge the upward pressure on raw material prices.” Wang Qing said that despite the inter-cyclical adjustment, the current round of steady growth policy is relatively moderate, and the MLF interest rate will be lowered during the year. The possibility is unlikely, but this does not mean that the LPR quotation will remain unchanged in the future. Among them, in order to increase support for the real economy, the central bank may implement a RRR cut again in the fourth quarter; under the cumulative effect, the possibility of a one-year LPR price reduction will increase significantly, and the reduction may be 0.05-0.1 percentage points. between.
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